Invoice finance is a form of finance that can provide valuable working capital to your business. I want to explore objectively the advantages and disadvantages of invoice finance.
Advantages of invoice finance
- invoice finance can provide up to 90% of the value of your sales ledger and ongoing invoices as cash to use within your business.
- this may allow you to take advantage of settlement discounts
- if you use factoring you can outsource the credit control of your business freeing up more time to concentrate on growth
- by taking up credit protection you can eliminate the risk of bad debts
- an invoice finance facility should grow in line with your sales
Disadvantages of invoice finance
- an invoice finance facility can be costly when compared to an overdraft facility. However, this is not always a real option.
- some people perceive factoring as losing control of your sales ledger rather than outsourcing.
- some people also feel that there is a stigma attached to factoring
- you can be tied into lengthy contracts and notice periods which can be restrictive
- hidden costs or at least costs beyond the headline rates can cause frustrations
- retentions and other restrictions on the funding can also mean that the true prepayment level is not what is expected or anywhere near the headline rate
I believe that an invoice finance facility can work very well in the right circumstances. However, it is important to understand exactly what is on offer. hat means you must understand the total costs involved and also the mechanics of calculating the cash made available.